Washington, D.C. – The Court of Appeals for the Federal Circuit (“CAFC”) overturned the district court’s finding of non-infringement. After Uniloc won a jury award of $388 million, the district court granted judgment as a matter of law (“JMOL”) of non-infringement and no willfulness on Microsoft’s post-trial motions. Details blogged here.

In reversing the district court’s decision, the CAFC found that “[b]ecause the jury’s verdict on infringement was supported by substantial evidence, this court reverses the district court’s grant of JMOL of non-infringement; this court also reverses the district court’s alternative grant of a new trial on infringement as an abuse of discretion.” The CAFC, however, affirmed the district court’s finding of no willful infringement because “the jury’s verdict on willfulness was not supported by substantial evidence.” The CAFC further affirmed the district court’s denial of Microsoft’s motion for JMOL of invalidity.

As to damages, the CAFC granted a new trial because “the jury’s damages award was fundamentally tainted by the use of a legally inadequate methodology.” In doing so, the CAFC disbanded the 25% rule of thumb (25%/75% royalty split between licensor/licensee) as a basis for royalties that it had previously “tolerated”: “This court now holds as a matter of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue.”

The CAFC concluded: “For the foregoing reasons, this court reverses the district court’s grant of JMOL of non-infringement, affirms the district court’s grant of JMOL of no willfulness, affirms the district court’s grant of a new trial on damages, vacates the district court’s grant of an alternative motion for new trial on infringement, and affirms the district court’s denial of JMOL of invalidity of claim 19 of the ‘216. The case is remanded for proceedings consistent with this opinion.”

Seems like we’re going to be seeing more such cases — with this kind of judicially-legislated “patent reform” — until Congress and/or the courts finally get a handle on acceptable damage award standards for patent infringement cases. The lack of any kind of controlling baseline is worrisome to many; also troubling to me, however, is this kind of ad-hoc approach that we’re seeing in the courts.